Complaints about how long it takes to close whistleblower cases are unlikely to end anytime soon. Whitlock said the audit process for high-dollar cases takes longer given the complexities of those cases and the opportunities for taxpayers to appeal. While officials originally expected that high-dollar claims awards would be issued within three to five years of claim submission, it now appears that the payout time frame is likely five to seven years, because the IRS cannot pay an award until the underlying tax liability has been collected, he said.
When it becomes clear during the intake process that a case is criminal, the case is passed along to the IRS Criminal Investigation division, Whitlock said, adding that during the audit process, other whistleblower cases can be referred to CI after consultation with a fraud technical adviser. Whether the Justice Department will grant a whistleblower immunity in a criminal probe depends on the individual's role in the noncompliance, he said.
- The time frame for processing sounds about right given the time to develop the case in the audit and then let the taxpayer thrash around with it as it will (I say it because most of these will be entity taxes or, if a partnership, subject to the entity audit and litigation rules). Note that, if during the process, the case were to turn criminal, it might well be that the lead time until collection with no right to refund may be extended further as the civil process slows down or stops altogether which the parties thrash around with the criminal investigation and further proceedings.
- The last sentence in the last quote may partially explain the treatment of the hapless Mr. Birkenfeld who, you will recall, was prosecuted and sent to jail despite the fact that he delivered to the Government UBS's skulduggery almost on a civil platter. He did participate in the type of skullduggery that UBS orchestrated. And, so the story goes, he was not totally forthcoming. So the Government prosecuted. The open question is whether he will qualify for a whistleblower reward. If so, it could be a very big one.
Whistleblowers and their lawyers also are frustrated that the IRS has created a black hole for whistleblower claims, so they get little or no information about the claims’ status. Perhaps the paramount frustration, however, is due to the apparent unwillingness of the IRS to take advantage of whistleblowers’ expertise and allow them to assist the IRS in certain, limited circumstances. This assistance clearly is contemplated by the 2006 law and could be allowed without violating confidentiality restrictions through the use of special confidentiality agreements known as “6103(n) contracts.” Why the IRS has ignored resources that it is free to tap is a mystery, especially as the agency suffers through staffing cutbacks.
Contrast the IRS attitude with that of the Securities and Exchange Commission, which
welcomes the help of whistleblowers under the SEC’s 19-month-old whistleblower program, and the Justice Department, which has a longstanding public-private partnership with whistleblowers to combat frauds against the government through “qui tam” lawsuits brought under the False Claims Act. An SEC enforcement official told Congress last year that high-quality whistleblower information had saved the SEC six to 12 months of investigative time on a matter the SEC only learned about from that insider. The IRS could benefit in the same way from whistleblowers.
Potential whistleblowers, particularly those in the executive suite, are well aware that only one known award has been made under the program in five years. Seeing that chances of a reward are hampered by the IRS’s attitude, a painfully slow bureaucracy and an attitude that shuns needed help, whistleblowers are thinking twice about risking their livelihoods to come forward. The statistics in the IRS Whistleblower Office’s 2010 report to Congress confirm that there has been a drop in the number of whistleblower submissions.Addendum 3/10/12
Best Practices in Pursuing IRS Whistleblower Claims: An Interview with IRS Whistleblower Office Director Stephen A. Whitlock (False Claims & Qui Tam Quarterly Review April 2009), here.
This is an interview in which Mr. Whitlock shares some unique insights into the administration of the tax whistleblower provisions.